Competitive Pressure and Lying in Search Markets
We study a labor market in which principals and agents must search for a trading partner, and agents have private information about the value of a match. We show that competitive pressure can induce agents to lie and overstate the value of the match. This leads to insufficient frictional unemployment and search, and lower average utility. The resulting social loss increases with the accuracy of the private information and the ease with which matches are created, and decreases with the time-value of money. An unemployment subsidy can eliminate the inefficiency. Changing how the surplus is split between principal and agent, by contrast, has no effect on the agents’ incentive to lie.
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| Length: | |
| Date of creation: | 2009 |
| Handle: | RePEc:htr:hcecon:426 |
| Contact details of provider: | Postal: 695 Park Avenue, New York, NY 10065 Phone: 212-772-5400 Fax: 212-772-5398 Web page: http://econ.hunter.cuny.edu/ More information through EDIRC
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- Burdett Kenneth & Imai Ryoichi & Wright Randall, 2004. "Unstable Relationships," The B.E. Journal of Macroeconomics, De Gruyter, vol. 1(1), pages 1-44, January.
- Patrick Legros & Andrew F. Newman, 2007.
"Beauty Is a Beast, Frog Is a Prince: Assortative Matching with Nontransferabilities,"
Econometrica,
Econometric Society, vol. 75(4), pages 1073-1102, 07.
- Patrick Legros & Andrew F. Newman, 2002. "Beauty is a Beast, Frog is a Prince: Assortative Matching with Nontransferabilities," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-149, Boston University - Department of Economics, revised Nov 2004.
- Patrick Legros & Andrew F. Newman, 2003. "Beauty is a Beast, Frog is a Prince: Assortative Matching with Nontransferabilities," Economics Working Papers 0030, Institute for Advanced Study, School of Social Science.
- Ken Burdett & Randall Wright, 1998. "Two-Sided Search with Nontransferable Utility," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 220-245, January.
- Kenneth Burdett & Randall Wright, 1994. "Two-sided search," Staff Report 169, Federal Reserve Bank of Minneapolis.
- Inderst, Roman, 2005. "Matching markets with adverse selection," Journal of Economic Theory, Elsevier, vol. 121(2), pages 145-166, April.
- Matthew Gentzkow & Jesse M. Shapiro, 2006. "Media Bias and Reputation," Journal of Political Economy, University of Chicago Press, vol. 114(2), pages 280-316, April.
- Matthew Gentzkow & Jesse Shapiro, 2005. "Media Bias and Reputation," NBER Working Papers 11664, National Bureau of Economic Research, Inc.
- Roman Inderst, 2001. "Screening in a Matching Market," Review of Economic Studies, Oxford University Press, vol. 68(4), pages 849-868.
- Ken Burdett & Melvyn G. Coles, 1997. "Marriage and Class," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 141-168.
- Adam Brandenburger & Ben Polak, 1996. "When Managers Cover Their Posteriors: Making the Decisions the Market Wants to See," RAND Journal of Economics, The RAND Corporation, vol. 27(3), pages 523-541, Autumn. Full references (including those not matched with items on IDEAS)
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